Cola Wars Continue: Coke and Pepsi in 2010 Case Study

Solution
Extent of rivalry
There are two leading and valuable brands in the market that have claimed the
market share of 72 percent of sales volume of CSD by 2009, hence followed by Dr
Pepper Snapple Group (DPS),which in year 2009, anticipated to hold the Cott
Corporation (4.9 percent) and 16.4 percent market share.
It is also analyzed that the competitors do not compete on pricing, but on
differentiation, hence keeping the industry growing and profitable. Also, the return
on equity (ROE) of PepsiCo and Coca Cola are 35.4 percent and 27.5 percent by
2009,respectively. These brands put their major emphasizes on non-price factors
such as lifestyle advertising and product innovation rather than on price of product.
Even if the brands have faced the price wars during 70s and 80s, they now prefer to
differentiate themselves to prevent the falls in profit returns.

Complementors
It is imperative to note that there are various complementors that can positively
impact the demand for Pepsi & Coke, such as hot dogs, hamburgers and other “all
American” food. There is a high influence of complementors due to the fact that the
complements can be the choice of strategic locations, which increase the
profitability. The soft drinks are available in restaurants, convenience stores and
supermarkets.All of such places tend to make these products handy to the
customers.

Strategy Formulation and Its Implications

The two valuable and renowned brands Pepsi and Coke can sustain and bolster
their profit margin in the wake of growing popularity,by reducing the demands of
non-CSDs via various strategic actions. Since, the preferences of the customers are
changing constantly, it is important for the brands to proactively monitor the
factors in external environment in order to obtain the valuable information in
response to the production planning. The brands need to come with the new non-
CSD product line or they need to acquire the established non-CSD brands,who
already have an efficient production and operation.
The brands should conduct surveys so that they could gain the consumers’ insights
on forms of non-CSD beverages that they wish or like to have.Another
recommended action is that the brands should consider the leverage knowledge of
marketing competency, customer base and established channel of distribution
through diversifying into healthy snack items after analyzing the attractiveness of
the market (Lee, 2009). They should innovate or ignite the bottled water, engage in
green activities and offer convenient and healthy choices for people with busy
lifestyles. Not only this, the brands should also pursue the high visibility
sponsorship. They should explore the product development and market
research innovation opportunities. The companies can go for vertical integration,
and buy the suppliers of their inputs or they could venture into distribution or buy
the final producers of their product. Such integration would allow them to bolster
profits and grow as well as flourish in such competitive market. The brands should
also bring innovation in value chain such as distribution, manufacturing,packaging
and other value chain steps(Birkinshaw, 2007).

Conclusion
To sum up, it is to conclude that the two valuable brands Pepsi and Coke have
controlled and have been dominating the carbonated soft drinks industry for
decades, but now these brands are experiencing the continuous and significant
drop in sales due to the changes in their external environment.The critical issues
include decline in CSD sales, which further includes Cola in the United States.It is
due to the fact that the price sensitive consumers have cheaper alternative easily
available to them, such as tap water of private label bottles water that tend to
exhibits the little loyalty of these consumers towards the brands in comparison to
CSD. Another reason of decline is the health issues such as nutrition and
obesity.The bottlers’ network is fragmented, while having limited power of
negotiation with the concentrated producers.Pepsi has purchased two of its biggest
bottlers, also, the largest bottler of Coke known as Coca-Cola Enterprise (CCE),
which handles 75 percent of Coke’s North American Bottle and logged sales on
annual basis for more than 21 billion dollar has been purchased by Coke in 2010.
Thus, the market contains various suppliers for the supplied inputs & the low
switching cost on the basis of the needs and cost, limiting the bargaining power of
supplier.The competitors do not compete on pricing, but on differentiation, hence
keeping the industry growing, flourishing and profitable.